Yes: They are a burden to marketplace transactions and discourage business startups.

By Ilana Mercer and N. Stephan Kinsella

Property and liberty are intricately linked. In fact property, not representative government or majority rule, exemplifies freedom. Property is a sphere in which the individual can be free of government; the historical role of private property as countervailing to the power of the state cannot be overstated. Equally strong is the relationship between strong private-property rights and prosperity. If nothing else, the dismal economic failure of socialism has demonstrated what transpires when private ownership of the means of production is abolished.

The insidious and persistent encroachment on property by the modern welfare state has, however, resulted in a complete confusion about the nature of ownership. By undermining the ethical foundations upon which property rests, the welfare state has made it morally acceptable to give people access to property they don’t own. Property grabs run the gamut from taxation, welfare programs, forfeitures, and environmental and antitrust legislation to the more subtle interference with freedom of contract inherent in minimum-wage laws and affirmative hiring.

Copyright and patent grants of privilege are another form of property infringement — courtesy of the state. While they have their origins in a much earlier privilege given to “friends of the crown,” in their modern incarnation they blend in with the welfare state’s wealth-distributing impetus. Far from being “natural” property rights grounded in the common law, patent and copyright are monopoly privileges granted solely by state legislation.

Copyright gives authors of original works (e.g., books) the exclusive rights to copy the work or to prepare “derivative works” based on the original. A patent gives an inventor the right to stop others from making, using or selling the patented invention. In both cases, the holder of this right is given legal control over how others use their property. As the author of a differently hued Gone with the Wind recently found out, the copyright holder can stop you from using your own paper and ink to publish a novel that reproduces the copyrighted work or one based on its plot. The estate of Margaret Mitchell, author of Gone with the Wind, is suing Alice Randall to block her from publishing the parody The Wind Done Gone. Randall tells the famous tale from the perspective of black slaves.

The mere act of creation — composing a song, penning a novel or inventing a mousetrap — gives the creator control over the tangible property of others. In addition to allowing the author partially to control the paper, ink, computer and photocopies of others, copyright in particular restricts not only our rights to our property, but to our very bodies. Consider the choreographer of a dance who gets the right to stop another from moving his body in a certain fashion.

First Amendment rights to freedom of speech also are compromised. A recent court order obtained by factions of the entertainment industry decreed that source code (a computer program) is not protected free speech, and the studios have a right to suppress it. What next? Do we unleash the force of the law against a devotee who recites computer code on a street corner?

It gets worse. You don’t have to be guilty of copyright violation to be constrained; doing something that might result in some third party making prohibited copies will suffice. A particularly rank example of prior-restraint legislation is the Audio Home Recording Act of 1992. Manufacturers of digital-recording devices are compelled by law to incorporate technology that prevents copying; they are penalized in anticipation of possible infractions. Manufacturers also are made to pony up royalties in lieu of each device of blank media sold. Ditto for consumers who pay through excise taxes.

Patents, however, take the cake. The patent holder can prevent others from practicing invention even if, as is quite common, they arrive at the process quite independently. Happen to think of a new way to tune your car engine to get better gas mileage? Better hope someone else does not have a patent on that technique; he could stop you from twiddling with your own 1967 Mustang in your own garage.

Thinking of dashing off a quick software-filing program to streamline your business? Think again. “Software-driven, multihost storage solutions for powering advanced business applications,” are being patented at a furious rate. Stripped of baffle gab, this mouthful means that for the privilege of filing, albeit electronically, you will have to pay extortion money to a patent holder. It gets scarier when you consider that 20,000 software patents are issued annually.

Price-inflating patent monopolies have grave consequences for undeveloped nations, as the latest patent imbroglio unfurling in South Africa suggests. The government of South Africa enacted legislation to allow parallel importing of, and domestic production of, generic AIDS drugs to help deal with the AIDS crisis. The multinational pharmaceutical kingpins moved in to enforce their patent monopolies, plunging South Africa into a life-and-death battle.

South African firms presumably have not stolen their equipment. Neither have they trespassed or broken an entry to obtain the molecular combinations for AZT, 3TC or ddI. These are in the public domain. So why should South Africans be prohibited from making these drugs?

Given that it’s generally a bad thing, through legislation, to transfer control of property from owner to nonowner, what possibly is the justification for such laws?

Most proponents view intellectual property (IP) as a matter of utility. Without such laws, the argument goes, we would be deprived of clever inventions and beautiful works of art. To utilitarians, the “costs” of monopoly privileges, not least the violation of property rights, are outweighed by their benefits.

Utilitarians turn a blind eye to the staggering sums companies spend on the fees of patent attorneys who prepare, file and defend patent applications, mostly for defensive purposes. Litigation costs millions. Mergers between companies often occur for no other reason than to settle patent disputes or to allow the merging parties to compete with a rival with a large patent armory. Submarine patents can emerge at any time, only to sink a high-tech company. The threat of patents increases overall business risk and can torpedo marginal or startup companies. If patents and copyright are essential to innovation, as the mantra goes, how is it that day dawns and the perfume maker who owns no odor-rights still is marketing high-end perfume that can be knocked off? Philosophers persist in writing their tomes, mathematicians toil at solving age-old riddles and physicists don’t tire from probing the universe. How does all this creativity continue without the reward of a monopolistic ownership in the ensuing ideas? And why is it fair for the law to protect practical gizmos but not more abstract ideas such as Einstein’s equation E=mc2?

So far, we’ve highlighted how intellectual-property rights interfere with the freedom of others to use their own bodies or their justly acquired property in certain ways. But why should they not be accorded this right? Why should tangible goods be the proper objects of property rights instead of intangibles such as the ideas IP laws protect? Here we arrive at the nub of the issue.

“He who receives an idea from me,” wrote Thomas Jefferson, himself an inventor, “receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.” Jefferson was very definitely not articulating the fatuous “information-wants-to-be-free” argument made by the left regarding IP. He was, however, enunciating what is the essence of ownable property.

Ownable property is only that which is economically scarce. And by economic scarcity we mean that, absent clear demarcation, conflict will arise as to who owns the resource. Land, cars, printing presses, paper and ink are scarce in the sense that if we remove them from you, you no longer have them. Our use of an item conflicts with your use of it. While an abundance of computers can be had on the market, our use of this particular personal computer excludes your use of it. If we could conjure computers with a genie gesture, they would be abundant, not scarce, and it would be immaterial if this one were removed.
However valuable, ideas are not economically scarce: Our listening to a piece of music doesn’t conflict with or exclude your doing the same. A copy made of a book doesn’t remove from its author the configuration of ideas that is the book. Ideas, very plainly, can be jointly consumed without dissipating.

Of course, the end product of an idea — to wit, a book or a compact disc — is very definitely scarce. True to John Locke, we say that if you purchase the book or buy the CD, you are its rightful sole owner. Proponents of IP, however, say that some distant author or musician partially may colonize your book and CD and tell you how to use them.

How do we allay the fear that without patent and copyright we would all perish? Consider this: How many tears would you shed if Bill Gates were worth only several — not dozens of —billions? Since Microsoft owes a good portion of its wealth to the copyright monopoly, this would be the upshot of its removal. If the company relied only on profits from initial sales and from support services, would that be so bad?

Being “first on the market” is its own reward. The various spin-offs and short-term advantages that accrue to innovators who develop new products provide sufficient incentive and profit to render patent protection unnecessary. Removal of patent protection often can accelerate research-and-development efforts. No sooner had Eli Lilly been stripped of its patent protection for Prozac than the company pledged a renewed commitment to innovation. This was reflected in investor confidence and climbing stock prices.

Innovators can and do “fence” their products. As IP scholar Tom Palmer points out, concerts and circuses are fenced-in events with “tickets sold and checked at the door.” There already are assorted blank recording media on the market that scramble signals beyond recognition, making reproduction impossible.

Bundling of products is a viable option as are tie-ins: these arrangements wed a product to a service. Television broadcasts already are tied to advertising, as are so many other goods. Computer programs are bundled with manuals or service features. The customer would rather purchase the product and get access to free maintenance than resort to copying.

Contracts, of course, inherently are free-market friendly. Unlike IP rights, they are voluntary and bind only parties to the agreement. There are leasing arrangements, too. Companies can enforce their property rights in the end product of the idea, the tangible good. They then lend the thing out subject to conditions specified in a contract.

Patent and copyright clearly undermine private property. A staunch defense of private property must lead to anti-intellectual-property conclusions.

[The views expressed in this article are the personal opinions of the authors and should not be attributed to any other entity.]

Mercer is a free-lance editorial writer based in Seattle and writes on intellectual property for the National Post and Ideas on Liberty. Kinsella has written widely on patent law and is vice president specializing in intellectual property at Applied Optoelectronics Inc. in Sugarland, Texas.

No: Ownership of ideas and a market system are the only reliable incentives for productivity.

By James DeLong

A decade ago the topic of intellectual property (IP) — patents on inventions; copyrights on books, music, movies and software; trademarks on brand names; secrets such as formulas for soft drinks — was a snoozing backwater of the law. Now it is hot! Cool! There!

The driving force behind the obsession is simple: money. Financial markets are dependent on IP. In 1978, the book value of tangible property owned by publicly traded companies equaled 83 percent of the value of these companies’ stocks and bonds. By 1998, this tangible book value was only 31 percent of total value, meaning that 69 percent of the total came from IP and good will. (Some of the market value actually came from moonshine, but 1998 preceded the biggest inflation of the NASDAQ bubble.)

Concern about IP is magnified by the Napster software for swapping music over the Internet. It demonstrates the vulnerability of IP in the digital age and threatens to implode the recording industry. Concern, perhaps panic, also is reinforced by ongoing lawsuits over DeCSS, the software that decodes the encryption system that protects movies on DVD disks. With DeCSS rocketing around the Internet, Hollywood fears the worth of any movie put onto a DVD disk will be zero.

Consumers should fear this, too, because it would mean no more movies on DVD, but they have not glommed on to this part of the deal yet. Their current reaction to both DeCSS and Napster is: “Hey! Free stuff.” The obsession with IP is triggering intense debates at both the micro and the macro levels.

At the micro level, the debate jumps around among many topics. Because we do not let people copyright “facts,” such as sports scores or stock quotations, how do we encourage investment in creation of useful databases? Is it legitimate to allow patents on “business methods,” such as Amazon’s one-click method of ordering? How do we treat information residing in the head of an employee who leaves a firm — and should law distinguish between information acquired “on company time” and a worker’s own creative idea?

There are issues of parodies and book reviews and improvements on existing inventions and the doctrine of patent equivalents and a zillion other nuts-and-bolts problems. If all creativity draws on a huge “cultural commons,” as indeed it does, how do we decide how much people should be allowed to fence off as their own?

At the macro level, discussion is more fundamental: Should IP be recognized at all? Some analysts of a libertarian bent reject the basic legitimacy of property rights in the products of the intellect. To explain why I think they are wrong, it is useful to reprise the thinking behind our recognition of the human right to own and use property.

Tough human institutions are like tough trees: They have multiple roots and draw stability from the combination. The idea of property is one of the toughest of human institutions, existing in all cultures across the ages, so we would expect to find it supported by a dense root system. A big root is the concept of Lockean justice. Ownership of one’s own self and effort is the most basic of human rights. Since material things are produced when people mix their labor with natural resources, the idea that one owns the fruits of this effort is powerful.

Accompanying this concept of justice is the pragmatic truth that ownership creates incentives for productivity. People might garden for fun, or hunt, dig ditches or write symphonies, but not much. Even if they wanted to, they would have to make a living, which reduces time and energy available for creativity on the side.

Giving the producer a property right in the output of his effort, or letting him earn pay in exchange for producing it, is the only sure way to foster these activities, outside of compulsion.

Property rights also are important for efficient allocation of resources. If something is scarce, the best way to ensure that it is put to its most productive use is to assign it to an owner motivated to find this best use. Property rights are a keystone of a complex market system that allocates resources among myriad investment and production possibilities. If society declares that crops belong to the grower but that petroleum belongs to all in common, it will produce too many crops and no oil. If it denies economic returns to IP, it will invest too little in creating it.

Political reasons favor recognizing property. Democracy works best, and probably only, if citizens are invested in the stability of the polity and have something to lose if its politics run off the rails. Investment in the form of electronic bits or worker know-how will serve as well as land or money.

And we have an interest in promoting human autonomy. To the greatest extent possible, people should be free to live their lives as they damn well please. It is impossible to imagine such freedom except in the context of a society in which ownership of resources liberates people from control by others. Again, intangible resources will do the job as well as material ones.

All these bases for endorsing the institution of property apply full force to the concept of IP, except for one: the point about allocating scarce resources. A pasture needs an owner. If it is a commons used by everyone, it soon will be exhausted and the sheep will starve, followed by their owners.

IP is different because many people can use it at once. You can play a song without interfering with my playing of exactly the same song at the same time. Millions of others can join us, each at his own device. This also is true of patents — you can copy the design of my machine without taking it from me. We can all graze our sheep on the same intellectual commons without exhausting it. Or, to paraphrase Thomas Jefferson, you can light your candle from mine without taking my light.

This is indeed a powerful difference between physical and intellectual property. It greatly influences analysis of many knotty micro issues. But it does not justify total rejection of intellectual property because the other roots remain.

Lockean justice still demands that I own the product of my labor. We still need to give people incentives to produce. We still need market signals that people should invest in producing intellectual as well as physical capital, and we still need the level of the returns to this investment to reflect at least roughly the rate of return to society.

The health of democratic government and the fostering of human autonomy are still served by intellectual property as well as by physical property. Opponents of IP make some additional arguments, but none are satisfactory. One is that creators can protect their work by contract and do not need the support of property law. But intellectual property must be disclosed to third parties who are not bound, and after that it is loose in the world.

This contention also assumes a perfectly functioning legal system and low transaction costs. Neither is realistic. Besides, to say that a creator has the right to limit disclosure seems to concede the central point — that he has a right of some sort.

Opponents sometimes argue that IP interferes with others’ abilities to use their physical properties, as when your copyright on a book limits my use of my printing press. But so what? Society constantly is resolving conflicts over uses of property, and there is no reason to say that tangible property automatically trumps intangible.

Finally, opponents say creativity will find a way and that products of the mind still will be cranked out even without ownership. This is partly true, but neither the quantity nor the quality will approach that produced by property rights and a market system.

Patronage sometimes is cited as an alternative, but to advocate reliance on the whims of billionaires and dukes or, worse, the National Endowments or National Public Radio, is an odd position for libertarians. Nor is sponsorship à la broadcast TV an answer. That industry does not sell a product to consumers; instead, it sells eyeballs to advertisers, a very different model that results in programming at the lowest common denominator.

In “free” television, the amount spent on a show for my viewing is limited to the profit a sponsor can make from selling me a box of detergent, which probably is about 10 cents.

As a consumer, I am better off with pay television. Then those of like mind can combine and offer to pay $2 or $100 for a product that suits our tastes. It is no accident that The Sopranos, a subtle and masterful work, is on pay TV. But this works only if the creator has a mechanism for selling to me, which means a property right.

Napster partisans are in a comparable situation. Intellectual-property opponents are correct in thinking that music still will exist, even if it isn’t paid for. But it will be from a few bands that can pack ’em in on a tour, plus 100,000 versions of the kazoo group that rehearses in the garage on Saturday because they must hold down real jobs during the week.

I prefer Bruce Springsteen, the New York Philharmonic and a plethora of other professional musicians who are paid so that those with the most talent are drawn into the business and then freed to be devoted full time to music. And I will fight those who, in the name of a misguided concept of liberty, would deny me my right to pay them.

DeLong is a senior fellow in the Project on Technology & Innovation at the Competitive Enterprise Institute in Washington. He also is the author of Property Matters.